Subscription Amount Received from Subscribers of E-Journals Cannot be Treated as Royalty: Delhi HC [Read Order]

In a significant case, the Delhi High Court has held that the subscription amount received from subscribers of e-journals cannot be treated as royalty.

The revenue challenged the order passed by the Income Tax Appellate Tribunal concerning Assessment Year (AY) 2013-14.  Via the impugned order, the Tribunal has partly allowed the appeal preferred by Springer Nature Customer Services Centre GMBH  the respondent/assessee. 

The respondent/assessee had filed its return of income (ROI)  as “nil”, which was initially processed under Section 143(1) of the Income Tax Act, 1961. 

The ROI was, however, picked up for scrutiny and accordingly, notice dated 20.08.2015, issued under Section 143(2) of the Act, was served on the respondent/assessee. The Assessing Officer (AO) made three additions to the income of the respondent/assessee.

The first addition concerned an amount equivalent to Rs. 24,84,114 paid to the respondent/assessee by an Indian entity, namely, Springer India Pvt. Ltd. (“SIPL”), against a Commissionaire Agreement. This addition consisted of two components. 

The first component constituted a commission fee, amounting to Rs.22,89,835. This payment, it appears, had been classified in the Form 3CEB report filed by SIPL as “production and editorial charges”. The respondent/assessee’s stand before the statutory authorities was that although this payment had been inadvertently classified as production and editorial charges, it was nothing but commission received against services rendered.

The second component of the aforementioned (first) addition was an amount equivalent to Rs. 1,94,279, which, as per the Form 3CEB report filed by SIPL, was categorized as “service charges” for the sale of "Indian journals in printed form”. 

The second addition amount represented the subscription fees received by the respondent/assessee against e-journals from two Indian entities, namely, Informatics Publishing Private Ltd. and ZS Associates.

The AO treated the aforementioned three additions as royalty, and to this end, invoked the provisions of Section 9(1)(vi) of the Act and Article 12 of the India-Germany Double Taxation Avoidance Agreement (“DTAA”). 

On appeal, the CIT(A) deleted the second component of the first addition, i.e., the amount equivalent to Rs. 1,94,279, which had been categorized as “service charges” for the sale of "Indian journals in printed form”.

The division bench of Justice Rajiv Shakdher and Justice Girish Kathpalia has observed that “the subscription amount cannot be treated as royalty, having regard to the fact that there is nothing on record to suggest that the respondent/assessee has granted the right in respect of copyright to the concerned subscribers of the e-journals. All that the respondent/assessee did was to sell the copyrighted publication to the concerned entities, without conferring any copyright in the said material.”

To Read the full text of the Order CLICK HERE

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